Billingsley Says Global Recovery Afoot, but Staggering

Billingsley, the North American director and head of research at RREEF Alternative Investments, spoke at the 2010 Commercial Real Estate Women Network Convention & Marketplace in San Francisco.

October 21, 2010
By Allison Landa, News Editor

SAN FRANCISCO – We’re not in a normal recovery. That’s according to Alan Billingsley, the North American director and head of research at RREEF Alternative Investments. Billingsley, who spoke at the 2010 Commercial Real Estate Women (CREW) Network Convention & Marketplace at a session titled “The Long Work-Through: Real Estate Recovery in the Next Two Years.”

“We’re in a soft patch,” Billingsley said. “We’ve been through the worst recession in my lifetime. …. It was fueled by financial markets, and financial markets tend to be very slow to recover. Our expectations are a slow recovery.”

One major difference from typical recoveries comes in the fact that we’re recovering in a global economy – which means the recovery is not relying on the United States as a driver.

“In fact,” Billingsley said, “we’re not really particularly relying on the developed world. It’s a very, very different environment out there. The growth that we’re looking for is really at the global level and mostly from the global markets.”

Globally, he said, the latest economic data suggests that the recovery is weakening, with job growth continuing to be slow. That said, he added that looking at some of the indicators going forward, he and his colleagues are cautiously optimistic.

When it comes to real estate, that recovery it showing itself unevenly throughout the U.S., with coastal markets targeted by foreign capital seeing the most rapid advances. Those tend to be the northeast and west coast regions. At the other extreme are late-recovery markets such as Southern California’s Inland Empire, the San Francisco area’s East Bay, Chicago, and Florida.

Billingsley said that the recovery is being led by the multi-family sector.

“The worst is past,” he said. “We’re going to be seeing very healthy rent growth.”

He characterized industrial real estate as a mixed sector partially dragged down by the retail market. However, he added that the heart of economic growth in this sector lies in land infill and business parks. “We’re bullish,” he said, “but steering clear of commodity.” The sector is predicted to be weak through 2010, then recovery with an occupancy gain.

Billingsley was less bullish on office properties, which he he described as a troubled sector, adding that shadow space adds to normal reported vacancy rates. “It’s the most volatile and sensitive to recession,” he said. “Stick to trophy market sectors: San Francisco, Seattle, New York, Boston.”

Finally he tackled the spector of retail, easily the hardest-hit sector during the recession. He said that the sector is grappling with unprecedented demand declines – but had some positive news. “It’s a tale of two retail centers,” he said. “There’s the one where people want to be and then there are the (defunct) ones. … Retailers who are left have done a great job controlling their costs.”

Billingsley warned that government support is waning and it’s time for the economy to stand on its own two – albeit shaky – feet. “The fiscal stimulus is running out,” he said. “We’re really at a point where the economy is going to have to do it on its own.”